Meacham Company Has Traditionally Made a Subcomponent of Its Major

question 16

Multiple Choice

Meacham Company has traditionally made a subcomponent of its major product. Annual production of 20,000 subcomponents results in the following costs: Meacham has received an offer from an outside supplier who is willing to provide 20,000 units of this subcomponent each year at a price of $28 per subcomponent. Meacham knows that the facilities now being used to make the subcomponent would be rented to another company for $75,000 per year if the subcomponent were purchased from the outside supplier. Otherwise, the fixed overhead would be unaffected.
-If Meacham decides to purchase the subcomponent from the outside supplier,how much higher or lower will net operating income be than if Meacham continued to make the subcomponent?

• A)$45,000 higher
• B)$70,000 higher
• C)$30,000 lower
• D)$70,000 lower

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Definitions:

Phosphate Groups

Phosphate groups are chemical groups containing phosphorus and oxygen; they play a key role in energy transfer and molecular signaling in cells.

Covalent Bond

A chemical bond involving the sharing of electron pairs between atoms, leading to the formation of a stable molecule.

Hydrogen Bond

A hydrogen bond is a weak bond between two molecules resulting from an electrostatic attraction between a proton in one molecule and an electronegative atom in the other.

Ionic Bond

A type of chemical bond that occurs when an atom transfers an electron to another atom, typically forming a bond between a metal and a nonmetal ion.